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4 Reasons to Buy — Not Start — a Business

LisaRileyLisa Riley, Ph.D., CBI, CBB

Principal at LINK Business

 

Success

START UP COSTS ARE HIGH

Starting up a business usually entails a large outlay of cash for expenses several months before a single dollar is ever earned. Some common expenses include: location, tenant improvements (TIs), furniture, fixtures, and equipment (FFE), marketing, advertising, product development, employees, office manuals, creating systems and processes, deciding on a merchant service provider, insurance agents, security firms, payroll processors, etc.

When buying a business, you simply take on the assets and have a proven market for the product/service your company will be providing. Most of the time, this includes customers or clients and revenue coming in on Day 1.

STARTING A BUSINESS A HUGE RISK

Although buying a business is no guarantee that you’ll be successful, when you compare the risks involved with starting a business to buying one, you’ll see the risks are lessened. As long as you do your research, buying a business means someone else has already taken on the high risk. When buying a business, you have a proven market for what your company will be providing.

Unless you have a very unique idea or thrive taking risks, the stress of trying to start your own company may not be worth it. Buying and running a business will provide enough risk for most.

YOU CAN USE A PROFESSIONAL LINK BROKER

Want to cut down on your risk even more, get a LINK broker involved. A LINK broker will assist you in order to acquire the best possible business for your investment and one that matches your goals as well as your personality.

Business startups do not have the same type of service available. You can ask around, hire a consultant, and/or read books about how to start the right business for you. If you can find someone who will get paid to help you make that decision and guide you through the startup process, please let us know. We’ve yet to find such a guide.

BUYING A BUSINESS IS EASIER

Buying a business basically means you get the recipe for success. You’ll potentially receive everything, including but not limited to: leased space, furniture, fixtures and equipment, clients/customers, suppliers/vendors, employees, brand recognition, intellectual property, etc. You simply follow the recipe or path of the last owner while looking for ways to improve.

When you start your own business you will need to find and acquire all those essential assets listed above plus plenty more. You may be debating which is more affordable and the answer is it depends. However, there can be no disagreement over which way is going to be easier (and decrease the time in which you bring in revenue).

Starting a business has been the American dream, however simply buying one may be a much smarter dream. Make sure you find the right business and success will be much easier.

What is a Multiple and How Do I Pay for a Business?

LisaRileyLisa Riley, Ph.D., CBI, CBB

Principal at LINK Business

All transactions are measured, in one way or another, by cash flow produced. This represents the return for the buyer’s investment.

Larger businesses that have more infrastructure, however, are typically measured by Earnings before Interest Expense, Taxes, Depreciations and Amortization (EBITDA).

Smaller companies are frequently measured by the cash flow available to the owners. This number is referred to as Seller’s Discretionary Earnings (SDE). SDE = EBITDA + 1 FT owner operator salary.

Owners of a closely held business typically have expenses that are discretionary and would not be typical of a more corporate-run business. Significant verifiable expenses, such as personal cell phones for owner and/or the family, personal automobile, etc., are included in SDE.

If an owner gets too aggressive, a bank will not give a borrower credit for these discretionary expenses.

Information is taken from the national IBBA and M&A Source Market Pulse Survey with Pepperdine Private Capital Markets Project and the Graziado School of Business and Management at Pepperdine University. The survey provides an understanding of the market conditions for businesses being sold in Main Street (values $0-$2MM) and the lower middle market (values $2MM -$50MM). For the full executive summary, please go to https://www.ibba.org/resource-center/industry-research/.

The Q4 2015 survey was completed by 348 business brokers and M&A advisors, representing 38 states. Half of the respondents (56%) had at least 10 years of experience in the M&A industry.

It should be no surprise that the businesses being sold for more than $5M have the highest multiples.

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Restaurant and Lounge Business for Sale in East Phoenix AZ- Reduced!

AskingRestaurant Price:$319,000

Gross Income: $1,450,512

Cash Flow: $156,400

EBITDA: N/A

FF&E: $93,000

Inventory: $59,000

Established: 2011

Employees: FT: 11 PT: 15

Business Description

Profitable, Popular, and Great Location

There are many reasons to visit this stellar restaurant and lounge located in the heart of a very prestigious location in the Greater Phoenix East Valley. Ideally located with loyal repeat clientele this upscale restaurant and lounge offers unique ambiance, extensive wine choices and an exceptional food menu.

Strategically located with exponential growth in the immediate surrounding vicinity makes this location second to none and the service from well trained and dedicated staff is impeccable.

Well established, exceptional staff and management and an awesome inventory of upscale wine choices combined with the opportunity to expand the officially approved footprint makes this the perfect fit for a serious buyer.

As with any business, you have to be fully engaged and truly believe that what you are selling is built out of pride and a strong foundation. If that comes in the form of a great atmosphere, awesome entrees or an exceptional wine selection then this foundation delivers it all in the form of an extraordinary restaurant and lounge.

If you want a business that turns heads, wins hearts and provides the opportunity for growth, then look no further than this gem in the Greater Phoenix East Valley.


Detailed Information

Inventory:
Included in asking price
Furniture, Fixtures, & Equipment (FF&E):
Included in asking price
Facilities:
Business has majority of repeat and walk-in traffic. Easy Access. Base Rent $6,885, NNN $7,344. Lease Expiration 2021; 1 option/5 years.
Competition:
Minimal competition in the area and a great reputation.
Growth & Expansion:
Significant growth potential exists in the areas of: expansion of footprint, menus and location. The City has already approved many projects that would increase foot traffic (i.e. office buildings, mixed use retail, apartment homes, condominiums, parks, theaters etc.) all within walking distance.
Support & Training:
In order to provide for a smooth transition to a Buyer, the Seller will provide 2 weeks of training at 20 hours per week.
Reason for Selling:
New business opportunity